GM set to move away from IT outsourcing

EDS, IBM, Wipro could lose out heavily

According to reports, General Motors is about to reverse its strategy of largely outsourcing its IT and bring it in-house.

This represents a massive turnaround in policy for the US carmaker, which owned the outsourcing giant EDS, until it was spun off in 1996 and has continued to use it for IT services even after it was acquired by HP in 2008.

According to reports, the carmaker will reverse the 90 per cent outsourced, versus 10 per cent in-house arrangement under the direction of CIO Randy Mott, who joined GM last February, from HP.

Previous GM CIO Ralph Szygenda, who retired in 2009 is regarded as the trend-setter of big-company outsourcing, slashing the company’s budgets by billions of dollars a year through the use of companies like EDS.

It is expected that EDS, which is an outsourced services supplier for GM alongside IBM, Capgemini and Wipro, could lose out on $3bn a year in revenues if the carmaker goes predominantly in-house.

Related:

National Outsourcing Association Martyn Hart said in a statement: "Outsourcing’s benefits come from economies of scale. GM’s IT spend runs into billions of dollars. The fact that GM is as big in infrastructure as a major outsourcing player means that it has the same opportunities to lower its costs by developing in-house global services.

"These services are arranged according to outsourcing principles. This internal company will have the governance models, SLAs and relationship management procedures that an outsourcing deal has. The only thing missing is the contract."

The transition from outsourcing to in-house is likely to take several years and will spark a rush of IT hires into the carmaker, but only in the US. Hart dismisses the idea that other companies will follow suit.

He said: "We do not expect this abrupt about-turn to herald a trend for bringing IT work back in house. Only the very largest companies could extract the same benefits from doing IT in-house as they can from outsourcing. Anyone whose turnover is smaller than a decent sized country is still better off outsourcing."

We have been hearing for years how CIOs and senior IT professionals need to bury the hatchet with line of business managers and, instead of focusing on the latest bleeding-edge technology for its own sake, seek to better understand the overall strategic objectives of their organisations.